Habits can make or break our personal finance success. While good habits can help you build savings and live without financial stress, bad money habits can turn into a downward spiral of debt, fees and struggles. Making some small adjustments to your financial habits is easier than you may realize. Break these seven bad money habits to put yourself on track to a happy financial life.
Making Only the Minimum Payment
When you get a loan statement in the mail, whether it is from a credit card, mortgage or student loan, you can quickly find your minimum payment for the next month. The key word here is â€œminimum.â€ Paying only the minimum payment means you pay the maximum possible interest over the life of the loan. Every dollar you pay early saves you on interest every single month for the remainder of the loanâ€™s life. The more you pay sooner in the life of the loan, the faster the balance goes to zero.
Not Saving for an Emergency Fund
A GoBankingRates survey found 69 percent of Americans have less than $1,000 in savings and 34 percent of Americans have no savings at all! Just as scary, 47 percent of Americans could not come up with $400 for an emergency. But these types of emergencies can and do happen all the time.
A broken-down car, a furnace clinging to life, a broken hot water heater, illness or injury are all incidences that could feasibly happen any time and can be costly. But almost half of Americans are not prepared for such scenarios. If your emergency plan requires you to sell something or grab a credit card, it is time to build an emergency fund. At a minimum, you should have three months of expenses saved.
Going Out for Lunch and Lattes Daily
It is easy to get into the habit of waking up, going to work and figuring out lunch when hunger strikes. For many people, that means a trip out, which can cost you anywhere from $7 to $15 for a quick bite.
According to The Simple Dollar, eating at home or bringing your lunch every day can save you $36.75 per week, on average, compared to going out to restaurants. That is around $1,800 per year. Add to that your daily latte habit which can add up to over $20 a week. Thatâ€™s another $980 a year. Â Bringing lunch from home,and reducing your coffee habit could net you more than $2,700 for your emergency fund over the course of a year. If you thought you couldnâ€™t come up with savings for an emergency fund after reading the section above, think again.
Skipping 401(k) and IRA Investments
If you have access to a 401(k) plan at work, take advantage. Many employers offer a matching program for a percentage of your contribution. This is essentially â€œfreeâ€ money from your company you get as a bonus for saving for your own retirement. Donâ€™t leave that money on the table.
Both 401(k) and IRA accounts offer tax advantages compared to regular savings and investments. Depending on your account type, you can either contribute to your retirement accounts tax free or withdraw tax free in retirement. These tax savings can be significant, so donâ€™t ignore your retirement account contributions.
Missed and Late Payments
For credit cards, late and missed payment fees are typically around $30. Even more, a late or missed payment can trigger default rates, which are often as much as 5 percent to 10 percent more than the regular APR. Missed and late payments are a very expensive mistake.
Setting up autopay at your lenderâ€™s website or your bankâ€™s bill pay system can help you avoid forgetting, or setup a calendar reminder so you receive an alert every month before the due date. Whatever will help you pay on time every month is the best system for you.
Going Without Insurance
Driving a car without insurance is a crime in almost every state in the country. Living without homeowner or renterâ€™s insurance is a huge risk, as you could lose everything in a freak accident with no recourse or backup plan. Going without life insurance, which is affordable, could leave your family in a precarious position in the event of a worst-case scenario.
Insurance is there for the unexpected. It would be wonderful to have a crystal ball that tells the future, but barring that, insurance is the best backup plan. Many insurance policies are cheaper than you may realize. Compare rates for life and auto and home insurance at SelectQuote with a no obligation, free quote thatâ€™s ready in minutes.
Ignoring Your Money Problems
Have you ever noticed a rattle in your car, but ignored it until it was so bad you thought your entire engine would fall out of the car? Fixing it right away could be a small, inexpensive repair. When you let it go too long, that cheap fix can become expensive.
The same is true of money. Ignoring your debt will not make it go away. Looking the other way when your credit card balances grow and savings shrink will not reverse the trend. Going without a budget will not help you spend less. Forgetting about your 401(k) will not help you save for retirement. This list can go on forever, you get the point.
Ignoring your finances is a serious mistake far too many Americans make on a daily basis. Instead of tuning out the problem, face it head on and slowly change your bad money habits to get on the path toward a more stable and enjoyable financial future. Money shouldnâ€™t be holding you back from living the life you want, it should be a tool you use to live your dreams.
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